The Short Sales and Bank Fraud story continues to gain traction. After CNBC aired the story we brought them, dozens of other media outlets, bloggers and authorities have contacted me to discuss this topic.

Here is the story of how this fraud initially came to our attention, along with the evidence to back it up.

Last year, I was contacted by an experienced real estate agent in our network who negotiates many short sales. She had recorded a conversation between her and a supervisor in the loss-mitigation department at a major national lender, who she felt was trying to get her to do something illegal.

Here is the audio of that recording, along with the transcript. The names have been removed at the request of the agent to prevent backlash from the bank.

Listen: Recorded Conversation with Bank Supervisor

AGENT: OK, so the only way to settle with *LENDER* then is to get money from somebody else and pay it prior to – that’s what *LENDER-EMPLOYEE* suggested – pay it prior to close of escrow, outside of…. Pardon me?

LENDER: That is something you can do.

AGENT: Pay it outside of escrow, off the HUD, prior to close.

LENDER: Right, that’s something you could do.

AGENT: And is that something you guys do regularly or you see people doing?

LENDER: Yes, that happens – we have people that send us money outside if they need approval letters from the first, and once we receive the additional funds, the approval letter can be sent for what the first actually offered – so it happens.

AGENT: OK and what about the fact that the first says that, no more than you know, a certain percent is to go to the second?

LENDER: OK, if the first… Here’s the thing, if you’re asking what this is about – the first is saying “well here’s what I’m going to allow” and the first is saying “this is what we’re willing to pay out.”  If there’s a contribution, if you don’t want to be able to come up with the additional that we’re asking for – the first has already gave their approval on what they’re doing – what someone just comes up with has nothing to do with the first.

AGENT: Even if on this letter it says that “the second is not to receive any more than a certain amount”?

LENDER: The first can not dictate what we receive. The first is saying what they are only going to allow. That’s the amount that they’re allowing to us. If someone out there – the buyer – or a family member puts more money and says here’s what I want to give for you because here’s the additionally requested funds – that has nothing to do with the first.
You’re not asking the first to come out of their pocket any extra than what they are willing to give. So that that’s not any information that might have to be required on the HUD.
Hold on one second please. 

LENDER: So I need to have the information – you’ve had the opportunity to go over this with *LENDER-EMPLOYEE* – did he explain all this to you on how this takes place?

AGENT: Well he does but I’m having a tough time, ******, I’m licensed and everybody else…

LENDER: It’s not illegal; it’s not a hard thing, this thing that has happened. The information that you’ve actually received from us – we’re actually trying to help you get this deal closed. If you choose to go back and tell the first what’s going on – you’re going to kill the deal.
So what actually happens prior to closing has nothing to do with the first. What happens at closing – that is information you can provide to them. If you are able to come up with additional funds not to get this deal closed prior to closing, then that’s fine – that’s irrelevant for the first. If you go ahead and you want to let the first know “well, here’s all the information that I have – here’s what’s going on” you will be the one to actually kill this deal. I’m trying to actually give you a way to go about getting this resolved. If you take our suggestion – you take the information that *LENDER-EMPLOYEE* has given you – you can have this done.
If not, then you know, those guys are going to foreclose on it and it’s a done deal. But it’s not like we’re holding up this process.

AGENT: Well, what about the form that the buyer’s lender puts out that there are – that everybody has to sign that says there are no side deals? 
I mean that… How do I get around that?

LENDER: What you need to take care of actually is not going to be a problem. What they submit to us – there is $****** they are giving us – the only thing you have to worry about – I mean it sounds like you’re scared that you’re going to be fined for something because you are doing something you are not supposed to. This is what we do all day.

AGENT: Well yes, I don’t want to lose my license, go to jail, I mean, I have to sign…

LENDER: You’re not going to lose your license – we have plenty of realtors who do this, who actually understand how this whole process goes – and they realize that OK, if I want to get this done, this will take place. Nobody’s losing their license and nobody’s going to jail, nobody’s receiving a fine…
So and here’s the thing too, I’ll be really honest with you, if you are uncomfortable about working it, you can probably assign it over to someone else, where they would be able to do this – if it makes you feel that uncomfortable – you should probably just assign it over to someone else. Someone who’s actually been able you know – who’s done this before, who’s more familiar with it.
Not to be disrespectful or rude to you or anything like that, but we deal with this every day all the time, this is not something out of the norm. But if you feel like you are doing something that’s against your morals, please assign it to someone else who’s been able to do deals like this so they can get it done, and you can have a happy buyer and a happy seller.

AGENT: Well, how do I get, I mean what’s the logic or if I could understand – when I’m signing a paper put out by FHA that says there are no side deals – this is a side deal.

LENDER: This is a contribution. You guys are able to come up with money in order to get this deal closed.

AGENT: OK

LENDER: OK. So the offer that we have it still stands – you can call *LENDER-EMPLOYEE* back and let him know if, what you’re going to do, and if you guys foreclose, we understand. If you’re not comfortable with this – go ahead and assign it over to someone else.

AGENT: OK, well thank you for your time.

LENDER: No Problem

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Lenders in 2nd position frequently are trying to obtain funds illegally. On the side. Off the HUD. CNBC recently aired a story on the matter. The following article explains how the story came to be.